In the trading businesses, the cost of goods sold normally creates the largest expenses of the business. The business owner will need to control this expense to maximize their expected margin, and also the owner needs to know the amount of stock loss due to various reasons such as damage or theft. It's also equally important to know the percentage to raise the sale price of the stocks sold.

The total of stock on hand needs to be adequate to meet the daily demands of customers. However, the more money to spend of stock purchase, the less money is available to pay to start new profitable projects or other bills, which means the working capital management is an integral part of the business.

Therefore, the business owners have to actively balance between keeping sufficient stock on hand to have the enough money available to undertake new projects or paying bills. However, if the prices are set too low the business may generate more sales, but those sales will not provide sufficient profit to the expenses and the business will not be able to earn a profit. It's therefore important that the owners are able to determine a suitable price that will generate a profit and allow the business to expand in the future.

We, at MGT Accountancy can help you determine your optimum stock that should be kept in order to maximize your profitability without endangering your customer base. Go Back ↻